Individual FCPA Liability: A Risky Proposition for FCPA Enforcement Proponents?

Both supporters and skeptics of aggressive enforcement of the Foreign Corrupt Practices Act have criticized the fact that the act is enforced much more often against corporations than against individuals. Some critics of FCPA enforcement often assert that it is unfair for the government to insist on corporations acknowledging criminal liability when the government is unwilling or unable to prosecute the individuals who committed the actual crimes. At the same time, supporters of aggressive FCPA enforcement argue that the failure to hold individuals personally liable, and to impose criminal penalties (including prison time) on those culpable actors undermines the FCPA’s deterrent effect. And they have a point: many doubt that fines and other monetary sanctions on corporations—at least at the levels that can be imposed under the FCPA—are sufficient to deter bribery, and there is evidence to support this claim.

Of course, individual FCPA liability is hardly novel; a number of past FCPA cases have included criminal convictions of individual company employees. But many have called for dramatically ramping up focus on individuals, and there are some signs that the U.S. Department of Justice may be heeding those calls. For someone like me, who tends to think that FCPA enforcement needs to be even more robust, this would seem like welcome news. And for the most part it is… but I do have a nagging worry, which may be entirely groundless, but that I want to try to flesh out in this post. The worry goes something like this:

The FCPA, like all laws, contains a number of ambiguities. Who is a “foreign official”? (Can that category included officials at state-owned enterprises or nominally private bodies with a quasi-public role?) What sorts of offers fall within the category of “anything of value”? (Can that include charitable donations or favorable treatment of family members, with no direct tangible benefit to the foreign official?) What sorts of bribery-induced benefits are for a business purpose? What is the scope of the statutory exemption for “facilitating payments”? Just how broad is the statute’s jurisdictional scope? For the most part, the U.S. government has adopted broad interpretations of the FCPA’s provisions. These broad interpretations are in my view not only plausible but persuasive, on both legal and policy grounds. But not everyone agrees. And, as I’m regularly reminded at the conclusion of every U.S. Supreme Court Term, U.S. federal judges do not (alas) always share my view of the law.

Nonetheless, the U.S. government has mostly been able to avoid lots of litigation challenging its interpretation of the FCPA, because corporations—the targets of most FCPA investigations—are (so the conventional wisdom goes) extremely reluctant to risk indictment, let alone trial, for a variety of reasons (reputation, the collateral legal consequences of an indictment, the cost and uncertainty of litigation, etc.). Virtually all corporations resolve FCPA investigations via non-prosecution agreements (NPAs) or deferred prosecution agreements (DPAs). The corporation and its representatives may grumble that the government’s theory of liability was based on an overly broad construction of the statute, but they’re not going to challenge it.

Individuals are, or at least may be, different. Although most individual criminal defendants also prefer to avoid trial by striking a plea bargain with prosecutors, as a relative matter individual criminal defendants are much more likely to go to trial, particularly in the FCPA context. Indeed, the very small number of FCPA cases that led to an appellate court ruling on a matter of law seem to disproportionately involve individual defendants: U.S. v. Esquenazi, U.S. v. Kozeny, U.S. v. Kay, and U.S. v. Liebo, for example. It is telling that despite the fact that the large majority of FCPA cases involve corporate rather than individual defendants, almost all of the admittedly small number of FCPA cases that generated an appellate judicial decision involved individual defendants.

That suggests that if the government were to go after a lot more individuals for FCPA violations—if it were to double or triple the number of individuals targeted, for example—we could expect a substantial increase in the number of FCPA cases litigated, and an increase in the number of appeals. Of course, the government’s track record on issues of law in FCPA cases, especially at the appellate level, is quite good. (The government has lost a few high-profile cases at trial, but mainly on factual or procedural grounds.) So perhaps the odds are that the government would win these cases on appeal, which would have the effect of reaffirming, and further validating, the government’s position on the meaning of the law. But that’s not guaranteed. What if the government loses some of these cases? What if the increase in litigation that we might expect as a consequence of more individual prosecutions means that we have a number of appellate courts, or perhaps the U.S. Supreme Court, ruling, for example, that the definition of “foreign official” is much narrower, or the meaning of “facilitating payment” is much broader, than the government has been asserting? That would, from an FCPA enforcement perspective, be a disaster, as it would affect not only the case in which the opinion issued, but all other cases within the jurisdiction, whether against individuals or corporations, that raise the same legal issue.

This concern is compounded by another factor: Generally prosecutors prefer to bring cases where the defendant’s conduct looks especially egregious, or the evidence is particularly strong, preferably both. In those cases, the defendant is more likely to appear unsympathetic to the judge (and the defendant knows this). But the more cases the prosecutor brings, the more compromises must be made on one or both of these dimensions. And even though these factors aren’t supposed to matter when judges issue rulings on “pure” questions of law (such as whether a corporation with less than 50% public ownership can ever count as a government instrumentality), in fact judges are routinely influenced by such factors. So more cases against individual defendants will probably also mean more cases against sympathetic individual defendants, which may make the government’s past track record of success in these cases an uncertain guide to its odds of prevailing in future cases.

Putting this all together: Substantially increasing the number of individuals targeted in FCPA criminal prosecutions is likely to result in more litigation, and more of this litigation will involve defendants who appear sympathetic; the result may be a greater likelihood of appellate judicial rulings on issues of law that dramatically narrow the FCPA’s substantive scope, which would reduce the statute’s deterrent effect (for individuals and corporations alike). Now, for some FCPA critics, this is precisely the point, and would be something to celebrate. (To some in that camp, the U.S. government’s desire to avoid having its views of the law “tested in court” bespeaks a lack of “rule of law” in the FCPA context and the weakness of the government’s legal position.) But for those who favor expansive FCPA enforcement, the shift toward individual liability may entail a trade-off: more individual liability may strengthen deterrence given the law as it stand, but might lead to litigation that narrows the law’s scope. That’s not guaranteed, of course, and it may not even be likely. But it’s at least possible, and for that reason worth thinking about. Is it worth actually worrying about? There I don’t know. I do worry about it a bit, but perhaps I’m being paranoid, or too-clever-by-half? Anyone out there have views on this?

7 thoughts on “Individual FCPA Liability: A Risky Proposition for FCPA Enforcement Proponents?

  1. Dear Matthew,

    I like your post. I think that concerns about federal judges significantly cutting back on the FCPA might be unnecessarily high, although not paranoid. First, I agree with you that I think that the government is not overplaying its hand with its current FCPA enforcement actions (that is, I reject the government substantive overreach arguments). The government has an excellent track record in front of federal courts (particularly on issues of law) because its positions are quite reasonable. Second, the OECD treaty (for which that US government very actively advocated) is even broader than the FCPA. Moreover, the courts of appeal that have ruled on the meaning of the FCPA (Kay, Esqenazi) have explicitly relied on the more robust OECD treaty provisions to support the governments position. That gives me some comfort that the US court system is going to continue to support the DOJ/SEC’s current enforcement strategy. Even if the OECD treaty does not explicit answer questions like “who is a foreign official” and “what is anything of value” (although it does help with the narrow interpretation of the facilitating payments), the general tenor of the treaty (and subsequent treaties the US has backed and joined) supports the government’s strong enforcement approach. Third, I am also heartened by some of the conservative justices’ endorsement of the Charming Betsy canon, which states that ambiguities in statutes should be construed to be consistent with international law. Scalia explicitly relied on this cannon in his dissent in Hartford Fire (Thomas and Kennedy joining) and his concurrence in Empagran (Thomas joining). Scalia’s embrace of the Charming Betsy canon in the anti-trust context makes me optimistic about its application in the FCPA context.

    • Thanks for these thoughtful comments. I’m sympathetic to all three of your points, and I agree that the concern that I raised shouldn’t be exaggerated. And I’m perfectly willing to concede that it may be some combination of paranoid and too-clever-by-half. Still, I think it’s worth thinking carefully about, and I appreciate your helpful points. Some quick reactions:

      On your first point, I agree that the DOJ’s track record has been very good, but I guess I’m still nervous, for a couple reasons. First, as I say in the post, significantly increasing the number of individuals targeted may mean some number of weaker cases with more sympathetic defendants, which might influence outcomes. Second, our sample size to date is very small, and federal judges (especially those Supreme Court justices) make me nervous.

      I’m very intrigued by your second point, and I may try to explore this further in a future post. I wonder how much of a constraint the OECD Convention would be on judges (or Congress). Hard for me to tell whether, in the few existing opinions that cite it, it’s actually doing work, or it’s more of a makeweight.

      Same deal on your third point, only here I do think it’s worth emphasizing that many of the proposed FCPA “reforms” might not be literally in conflict with the US’s obligations under the Convention, even if they would run counter to the Convention’s spirit. And if that’s the case, Charming Betsy might not help us much.

  2. Matthew — Your post reveals an interesting contrast between the development of substantive law surrounding the FCPA and the law surrounding the Alien Tort Statute. The first wave of Filartiga-style ATS suits largely targeted individual foreign officials that fled the country instead of defending the civil charges. As a result, that first wave yielded default judgments and rulings favorable to plaintiffs. That all changed, of course, with the second wave of suits, which largely targeted corporations in search of enforceable damage awards. Unfortunately for ATS plaintiffs, the corporations defended the suits, brought more sophisticated counsel, and started to win massive victories, culminating, of course, with Kiobel in 2013.

    From the ATS storyline, I’d draw a quick observation: Unlike in the ATS context, corporations tend not to litigate FCPA liability because it tends to be imposed through criminal penalties or joint criminal/civil enforcement actions. Corporations are much more willing as a general matter to litigate civil — as opposed to criminal — liability, but they have few opportunities to do so in the FCPA context. And when they do, as in free standing SEC or DOJ civil actions, the penalties and the corresponding incentives to litigate tend to be much smaller. The lesson here is that it matters that FCPA corporate liability is often accomplished through criminal penalties — this significantly reduces the likelihood that corporations will bring deep pockets and sophisticated counsel to challenge the government’s FCPA interpretations. Since corporations will probably, on average, afford better counsel, this contrast to the ATS context is probably quite a good thing from your point of view.

    • Fascinating. I hadn’t thought of the interesting parallel/contrast with ATS litigation, but of course you’re exactly right. What happened there is almost exactly what I’m worried might happen in the FCPA context, but the roles are reversed: there, targeting individuals was unlikely to result in litigation (and appeals), but corporations would (and did) fight — and ultimately won a judgment that affects not just cases against corporate defendants, but all ATS cases. In the FCPA context, it’s the corporations that all settle, while individuals might fight. The fear is that more targeting individuals will ultimately produce the Kiobel of FCPA litigation.

      Your related point about the threat of criminal liability being the major deterrent to corporations litigating these cases is also fascinating. I wonder why this is. I was actually at a conference recently where this topic was discussed quite a bit — why do corporations hate criminal liability so much, when the penalties from civil liability can be just as bad? There’s definitely a bigger reputational penalty… but why?

  3. Great post. I am also torn – on the one hand, individual criminal liability would substantially add to the FCPA’s deterrent effect but, on the other hand, the government would give up some of the discretion that has helped the FCPA to become such a powerful tool. To the point about deterrence: I actually do think that litigation could have advantageous ex ante effects on compliance. Published decisions and detailed definitions would allow companies that really do want to be FCPA compliant to structure their actions and design compliance programs. Of course, as you note, just what those programs would look like (or would need to look like) would depend on the substance of the judicially determined definitions, which might not be favorable to a robust FCPA. Moreover, probable Circuit splits and differences between districts could provide fodder for future defense briefs. The DOJ has worked to address the alleged lack of guidance, with the FCPA Resource Guide, for example. I may be naive but, even with all of that said, publicly institutionalizing the FCPA is a benefit worth considering.

    Like Jordan, I thought of the ATS and how the increasingly ambitious litigation more or less killed the plaintiffs’ strategy. Part of me thought that the Kiobel opinion offered a cautionary tale about what the Supreme Court might do with the FCPA – although FCPA violations are far from foreign-cubed (foreign plaintiff, foreign defendant, foreign injury) situations, there are critics who think that the harm nexus with the U.S. is weak. I think those critics are wrong and you’ve articulated the reasons why on this blog, but federal judges might not agree. This is beyond the scope of your post but I think another important difference between the FCPA and the ATS is that achieving corporate liability under the ATS required some fancy legal footwork. Some of the lawyers who pioneered that strategy have said that, in hindsight, they went too far, too fast. In contrast, the FCPA has become a pretty powerful, well-respected (if not well-liked), widespread tool. It wouldn’t be a great leap – normatively or legally – to step up prosecutions against individuals.

    • To your first point, I’m less convinced we need litigation and appellate opinions to clarify what corporations ought to be doing in this context, primarily because of the Resource Guide. Yeah, companies continue to complain that they don’t know enough about what DOJ is thinking, but I don’t think a bunch of appellate opinions would help much.

      To your second point, you make a good argument as to why the FCPA context may be different from the ATS context, and why my concerns may be overblown. I’ll need to think about this a bit more. Maybe at this point the DOJ/SEC’s theories of the FCPA’s meaning are sufficiently entrenched that the courts would be likely to accept them. And maybe the fact that it’s the government, rather than private litigants, pushing these theories will make courts more likely to accept them. Of course, if that’s right, it’s even more of a reason to worry about private FCPA enforcement, as I discuss in a subsequent post.

  4. Pingback: ‘Should FCPA Enforcers Focus on Bribe-Paying Employees or Their Corporate Employers?’ ←

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s